The 'Hope Trade' May Be Coming

You have to be slightly encouraged by the fact that Intel comes out with the kind of warning it did, and the stock rallies. (See Intel ticker, below.)

You have to be slightly encouraged by the fact that the VIX dropped below its 50-day moving average.

First, the trading in Intel tells us that we have already priced in a good deal of bad news in tech before their announcement. Just look at this debacle:

Techs in August:

Intel down 12%

Research in Motion down 20%

Seagate down 19%

Hewlett-Packard down 18%

Cisco down 11%

Second, Mr. Bernanke this morning, in his own way, said he is willing to do anything if and when the time comes.

This sets up the fabled "hope trade." It is the opposite of the current trade in vogue, the "final flush down" trade: another 10 or 20 percent drop in September-October to 800-900 on the S&P 500.

The bizarre thing about this year is that both of them could happen, one right after the other.

The hope trade is predicated on the idea that the elections, combined with some type of Quantitative Easing from the Fed, combined with more robust M&A, combined with oversold conditions, combined with the fact that long/short equity hedge funds have made no money this year and will be forced to trade more actively, will create an upward bias in the markets later this year.